INVENTORY AND WAREHOUSE MANANGEMENT (D0 5) LECTURE

1.0 INVENTORY IN LOGISTICS AND SUPPLY CHAIN

Inventory is the stock of any items or resources held in an organization for sale or use; they are materials in

a supply chain or in a segment of supply chain expressed in asset, quantities, at locations, sites and/or

values.

There is a distinction between manufacturing firm inventory and service firm inventory. Manufacturing firm

inventory refers to all items held in stock that contributes to or become part of organizations products e.g.

raw materials, finished goods, supplies, work in progress and piece parts. Service firm’s inventory refers to

all tangible goods to be sold (stock in trade) and the supplies necessary to administer the service. e.g.

telecommunication parts of mobile phones, company such Glo keeps stock of scratch cards, SIM cards,

packaging material etc in order to offer competitive services to its clients.

Below are some items or materials referred to as inventory.

Stock in-trade/finished goods This is the stock carried by a merchandising firm (wholesale, retail or other trading concern) to be sold at a

profit.

Raw materials

These are basic materials or outputs from the primary sector which undergo production transformation

processes to become finished products e.g. steel, barley, cotton.

Finished products of one firm may be raw materials for another firm;

e.g. Logs → paper → printing industry.

Mining → steel → steel products.

Work in progress

Comprises incomplete items e.g. wine-making industry, lugs

Tools

Tools include hammers, nails, screwdrivers, milling cutters, forming and shaping machines etc.

Packaging materials Include wrapping materials e.g. wrapping papers, ropes, bottles, protective coating such as Grease, wax or

plastics.

Equipment and spares: Includes machines, installations and vehicles as well as the associated spare parts

e.g. Production line, basic infrastructure.

Benefits

The benefits of the application of inventory management concepts are many and include the following:

(a) Provides both internal and external customers the required service levels in terms of quantities and the

order rate fill (timing).

(b) Ascertains present and future requirements for all types of inventory to avoid overstocking or

under- stocking.

(c) Keeps costs at the minimum by variety reduction, economic lot sizes and analysis of costs incurred

in obtaining and keeping inventories.

(d) Provides upstream and downstream inventory visibility or service in the supply chain.

(e) Enables effective planning and management of inventory, giving due attention to real and lead time

Inventory management in the supply chain is critical to a firm that desires to meet customers

and their needs. The firm must as a rule understand model for inventory planning, demand

forecasting, replenishment methods, amongst others.

Inventory Demand Patterns

Demand patterns inform us of the consumers’ reactions to a product. We can use these to prevent /

prolong the obsolescence of a product.

Seasonality and promotions will typically give a sharp increase in demand followed by a sharp decrease as

re-orders are delayed until the promotional items are used / consumed.

Demand is critically related to the stock available. Every company must have its own demand analysis

Typical stock levels:

70% stock cover may be held for slow-moving / less critical items 95% stock cover may be held for fast-moving / critical line items

Demand Forecasting is easier if

The product is old / established It is a consumer product with a more visible end demand Has a stable demand Has a short life period

And it more difficult

New / launching products part/ assembly of a consumer product Has an erratic demand due to competition and/or short-term changes Long life period

2.0 ABC ANALYSIS (PARETO 20/80 RULE

On the improvement possibilities for warehouse picking, the first thing is to be able to categorize

throughputs.

In large firms, there are many items that are stored and it is therefore, important that effort should be

concentrated on the most cost-effective areas.

This can be done by conducting an ABC / Pareto Analysis (80/20 Rule) which reveals as follows.

A: fast items

B: medium items

C: slow moving items

Thus inventory items are classified into three groups.

A. High value items. The 20% of the items that account for 80% of the total inventory value. B. Medium value items. The 50% of the items that account for approximately 15% of the total value. C. Low value items: The 30% of the items that account for 5% of the annual inventory value.

Interpretation of the above:

a) Group A should be monitored more closely, perhaps daily b) Group b should have less attention c) Group C should receive least attention

ABC analysis helps to classify all the inventory items into three categories based on their usage values.

Items of high usage but small in number are classified as `A’ items and would be under strict control. `C’

items are large in number but require little capital and would be under simple control. Items of moderate

value and size are classified as `B’ items and would attract reasonable attention of the management.

It can be concluded that ‘A’ items contributes to highest investment returns, while ‘B’ and ‘C’ contributes

medium and minimum respectively.

2.1 ABC Analysis Classification Process

1. Find the annual usage value of every item in the sample by multiplying the annual requirement by its unit cost.

2. Arrange these items in descending order or usage value computed above. 3. Accumulate the total number of items and the usage value. 4. Convert the accumulated totals of number of items and usage values into percentages of the grand

totals. 5. Plot the two percentages on the graph paper. 6. Mark the cut off points X and Y where the curve changes its shape dividing it into three segments A,

B and C. These segments A, B and C for the sample are then generalized over the entire population of stock items.

Example

The following information is known about a group of items. Classify the items as A,B and C.

Item No. Annual consumption in pieces Unit price in %

501

502

503

504

505

506

507

508

509

510

30,000

2,80,000

3,000

1,10,000

4,000

2,20,000

15,000

80,000

60,000

8,000

10

15

10

5

5

10

5

5

15

10

Solution

The first step is to compute the annual usage value for each item by multiplying the per unit price by the

annual use and to rank them in the descending order of the annual usage values.

Item No. Annual

consumption in

pieces

Unit prices in paise Annual usage

value in N

Ranking

501

502

503

504

505

506

507

508

509

510

30,000

280,000

3,000

110,000

4,000

220,000

15,000

80,000

60,000

8,000

10

15

10

5

5

10

5

5

15

10

300,000

4,200,000

30,000

550,000

20,000

2,200,000

75,000

400,000

900,000

80,000

6 (B)

1 ( A)

9 (C)

4 (B)

10 (C )

2 (A)

8 (C)

5 (B)

3 (A)

7 (C )

What we have done with the above table is an accumulation of the total number of items and their usage

value and then convert the accumulated values into the percentages of the brand totals.

Mark the cut-off points X and Y where the curve changes its shape. This divides the curve in three segment

A,B and C. It may also be noted from table that the first two items have a large annual value, the next four,

a moderate annual value and the remaining four, a small annual value. These may be categorized as `A’, `B’

and `C’ items respectively.

From plot as well as table, it is clear that it is necessary to lightly control only 20% of the inventory items

(the `A’ class) to achieve tight control over 73% of the total annual value of inventories. On the other hand,

40% of the items (the `C’ class) can be virtually ignored and yet there will be loss of control over only less

than 2% of the total annual value.

Advantages

1. Facilitates inventory control and control over-usage 2. Eliminates unnecessary paperwork involved in control procedures. 3. Facilitates selective control thereby freeing up management time 4. Reduces stock-holding costs. 5. The company is able to concentrate on high value items.

Disadvantages

1. Items of low value, but important may be ignored. 2. Does not permit precise consideration of all relevant inventory management problems e.g.

adequate handing. 3. The use of volume is a wring performance measure; instead, some measure of profitability is more

desirable. 4. It may need the accumulation of a large data for correct information.

The below diagram shows % of product line and % of total of sales: 20=80, 50=15 & 30=5 contribution level.

3.0 JUST IN TIME

Just In Time (JIT) has been defined as the production of the necessary items of high quality in the necessary

quantities at the necessary time i.e. production is managed such that necessary supplies are delivered

immediately before they are used. Thus with JIT approach, queues waiting processing in production

operations are minimal. Work in process is low, total times spent and space requirements are reduced and

flow through the system is virtually continuous.

Just in time means the raw materials are received just in time to go into production manufactured parts are

completed just in time to be assembled into products and products are completed just in time to be

supplied to consumers.

In JIT, inventories are minimized and work is not done until required. Items are not processed until

required at the next process, and processes are interdependent.

JIT is based on three major principles and they are:

a. Minimization of waste in all forms. b. Continuous improvement of processes. c. Respect and motivation of workers to ensure productivity

As regards JIT approach to the management of inventories, it aims at creating a zero or low level inventory

operating system. Under a JIT system you don’t produce anything, anywhere, for anybody unless they ask

for it somewhere downstream, inventories are seen as evil that firms are taught to avoid as much as

possible. Once inventories are reduced there will be a substantial reduction in ordering and warehousing

costs, streamlined operations that assist companies to meet competition even global levels.

Factors of a JIT system that make its use almost inevitable in organisations can be adduced to the following.

i. Reduced set up times and small batch sizes. ii. Efficient flow i.e. elimination of non-value added activities.

iii. The entire system is led or pulled by demand. iv. Employees must be multi-skilled in a JIT environment. v. Understands the Kariban system.

vi. A company must develop a Total Quality Control (TQC) over its parts and materials. vii. A company must learn to rely on a few suppliers who are bound under long-term contracts and

must be willing to make frequent deliveries in small lots online deliveries. viii. Emphasis is on zero defects.

The techniques to achieve the objective of JIT are but not limited to the following

i. Blanket orders: There’s no need for detailed orders and specifications. ii. Paperless payments. When we know the components of a product, we therefore, pay without

invoices. iii. Electronic ordering: Information should be share with suppliers. iv. Flexible design: The standardization and customization due to compatibility of components across

many products. v. Flexibility capital.

vi. Demand management: By controlling access to make demand and use of constrained capacity.

Advantages

1. Reduced inventories and work in progress 2. Reduced space requirement 3. Shorter throughput times 4. Greater employee involvement, participation and motivation 5. Smoother workflow 6. Greater productivity 7. Improved product service quality 8. Improved customer service 9. More uniform loading of facilities ( Only five (5) points to be selected)

Disadvantages

1. JIT is applicable primarily to more repetitive production situations involving relatively standard products rather than either custom, continuous flow, or projects situations.

2. JIT demands discipline, if products don’t arrive on time or if defects occur, production will stop. 3. If current environment is one of suspicion, distrust and competition, JIT will not operate. 4. There is the possibility of idle time in workstation 5. A lot of accurate information is required.

In conclusion, JIT inventory system is a very good approach to inventory control, costs control and

reduction or elimination of inefficiencies; but its attendant areas of weakness must be taken care of

properly.

4.0 MATERIAL HANDLING AND MATERIAL HANDLING GUIDELINES IN LOGISTICS

(i) Introduction: To achieve expected productivity in logistics operation the right handling equipment must be

acquired. This must be done in line with the storage system. In fact, the investment in material handling system will be

a total waste if it is not compatible with the warehouse layout plan. The layout could be an obstacle to the free

movement of equipment and the goods, resulting in poor equipment productivity. For an efficient warehouse

operation, the right layout, equipment and skilled manpower must be in place.

A typical example is the use of mechanized equipment in the movement of heavy machine parts, live axle beam within

and out of the warehouse.

High quality operating equipment results in the efficient:

a) Unloading of incoming material from transport vehicles;

b) Moving the unloaded material to the assigned storage place in the warehouse;

c) Lifting the material from its storage place during order picking;

d) Moving the material for inspection and packing;

e) Loading the packages, boxes or cartons on to the transport vehicles.

If material handling equipment is efficient, it can contribute significantly to the performance outcome level of

the warehouse. As a norm, the internal movement of goods has a direct bearing on the order picking and

fulfillment cycle, hence the equipment and manpower to be deployed be of high quality.

It is generally known that if the warehouse is considered to be more labour intensive, material handling

equipment also relatively become more sensitive to labour productivity than expected production output. There

is the need to reduce manual labour and enhance the productivity by using the emerging technologies in

material handling. A good material handling system will definitely enhance the speed and throughput of the

material movement through the supply chain.

Material handling system is classified on the basis of its degree of sophistication. The most preferred way of

material handling is doing manually where the volumes handled are less and the investment in handling

equipment do not ensure more benefits. Material handling has some significant effects on the efficiency and the speed of the warehousing operations,

thus requiring standard guidelines

The following are some of the guidelines in place.

a) The system must be designed for continuous flow of material, that is idle time should be zero

b) Acquisition of standard equipment that ensures reasonable investment and flexibility in case of changes

in material handling requirement in future

c) Incorporation gravity in the material flow system, if possible

d) Ensure that ratio of deadweight to pay load of the material handling equipment is minimum.

The selection of handling equipment is also based on guidelines, and is as follows:

a) Known volumes to be handled

b) Speed in handling

c) Expected Productivity level

d) Product characteristics (weight, size, shape) to be determined

e) Nature of the product (hazardous, perishable, crushable) to be handled to be known in advance

(ii): The preference for equipment systems with higher logistical productivity index have been noticed amongst

warehouse operators. But the associated investment cost remains a huge challenge. This is the reason majority

of firms use a combination of manual and mechanized systems.

Warehouse equipment is classified in line with their use and technological sophistication, and they are classified

as follows:

a) Manual

b) Mechanized

c) Semiautomatic

d) Automatic

e) Guided information

Some of the equipment are as follows.

a) Wheeled Trolley: This is the simplest mechanized handling equipment trolley on wheels. The

hand-held trolleys are efficient for handling small volumes over a short distance.

The two-wheeled hand trolley is simplest and versatile. The four-wheeled hand-held trolley is called a platform

truck capable of moving light loads horizontally. It can move the load both in vertical and horizontal direction.

For example, if 30 cartons weighing 25 kilogram each is to be shipped to a distance of 20 meters every half one

hour, some being picked up and dropped off at different places, then manual wheeled trolley is the best option.

For higher volumes and longer distances, use of powered (electric battery operated or diesel engine) trolleys is

preferred. Trolleys are available in wider range to carry the operator while some require the operator to walk

along with the trolley.

b) Forklift Truck: This equipment represents the greatest single innovation in material handling after World War

II. It is responsible for supporting the concept of unitization of loads. The introduction of pallets as unit load for

material handling and storage was mainly possible because of the forklift truck. The main advantages of forklift

are:

a) Moving larger loads over a longer distance

b) picking and dropping off the load as it travels

c) Moving the load vertically in the vertical storage system

d) Moving the load both vertically and horizontally for exactly positioning it for loading and

unloading operation

e) The manoeuvrability of load in all direction is excellent

Forklift trucks are the work horse of the warehouse, most commonly used for movement of unit

loads such as pallets, containers and slide plates. They are the most versatile material handling equipment used

in the warehouse, also they are most reliable and relatively easy to operate (Figure 5.3).

The forklift arms can go through the entry channels at the bottom of the pallet.

Depending on the pallet design, there can be two- or four-way entry. The two-way entry pallet can be lifted by

forklift truck from two opposite sides while the four-way entry pallet can be lifted from all sides. The use of

forklift is not limited to handling unit load such as pallets only, it is also used for handling boxes, cartons and

skids.

The forklifts are available in a variety of models and capacities depending on the applications.

There are two basic types of forklift trucks, the first is manual one with power lift and the second

one is rider-controlled forklift truck. The manual type (with without power lift) is commonly used

for loads up to 1000 kilograms and is designed for short haul operations. However, space requirement is more in

case of powered machine used for manoeuvring. No exceptional skills are required

for operating these machines.

As regards the rider-controlled forklift trucks, these are tailor made for applications, and variations in them

are quite considerable. The various rider-controlled forklift trucks in use are:

Counter balance

Stacker reach straddled-arm

Narrow isle

Four directional

Side loader

Double deep pallet reach

These forklifts are available to lift loads up to 40 feet of vertical height and operate in narrow

aisle of 56 feet for use in automated warehouses. The standard forklift trucks are available for lifting loads up to

5 tonnes. However, the lift trucks up to 20 tonnes lifting capacity are also available.

c) Conveyors: Conveyors are used for applications where continuous flow of material is required

over longer distances. They excel at straight transportation because they eliminate re-handling

before and after each function. Conveyors are also used in sorting and merging operations. For

example, in large throughput warehouses, the cartons for dispatch to a particular region have to

be sorted out for loading on to the assigned vehicle. The conveyors fitted with bar code reading

device sort the boxes moving on the conveyor and direct them to the assigned dispatch station in

the warehouse. These conveyors are most commonly used in the automated warehouses of retail

outlets such as Shoprite, Ikeja Mall, where cartons as high as 20,000 in numbers are handled every day. A

conveyor is either power driven or gravity flow type and is available in chain, belt or rollers as conveying

media.

One characteristic of conveyors that makes them popular is that they can be easily equipped

with automatic control devices for sorting, weighing and squaring off operations which are built

in the conveying system. The most common usages are baggage handling at airports, coal handling at thermal

power stations and iron ore handling at integrated steel plants where the conveyors are used extensively.

The ones in use are Wheel Conveyor, Roller Conveyor Belt Conveyor and Chain Conveyor.

d) Carousels: Carousels are commonly used in order picking systems. The number of bins housing the various

items is housed on an oval track. The bins move on the track and a bin containing

particular item can be brought to the order selector. A typical application of carousel is selection

of service part for packing operation. The carousel system reduces the storage space and the man-

power involved in order picking process. To increase the productivity, the carousel is integrated

to a computerized system. In this, the bin movement is synchronized with order pickup for the particular order

in multiple order selection process. The items selected are put into the carton, which

moves to packing and further to dispatch sections.

e) Automatic System: The automated material systems are custom built and attract heavy investments.

Human factor is minimized substantially and restricted to programming and controls. The advantages are

speed

and accuracy, which enhance the productivity of the system. The main disadvantages of the automated system

are high investment, complexity in development and absence of flexibility. The automated material handling

system is always developed along with the storage system specific to its requirements for synchronous

operations. The storage system accounts for 40-50 per cent cost of the total system. The system is connected

to the computer for programming the equipment options, material pickup route, packing and loading

instructions.

Overhead Cranes. Overhead cranes are used for moving very heavy items over a short distance.

Items such as steel plates, bars, coils, tubes or machinery components can be efficiently handled

with overhead cranes. These cranes have the moving and lifting mechanism installed on the fixed

girders at the roof of the building. Lifting mechanism is called as saddle or hoist, which moves on

rails across the bay and saddle can be moved throughout the length of the bay (Figure 5.5).

These are used where large heavy items or containers have to be moved in and out of the ware-

house. The overhead cranes are built for lifting capacity over 5 tonnes.

Stacker Cranes. Stacker cranes are electric power drives and operate on fixed rails at base and

top of each aisle. They are used for lifting the loads of about 2 tonnes up to the height of 60 feet

and are not economical for lifting to the height below 30 feet. The stacker cranes are normally used

in large warehouses where large number of pallets are to be picked and sacked. A typical installa -

tion may house more than 1000 pallets per aisle.

Pneumatic Tube System. Pneumatic tube systems are used for movement of granular or pow-

dered material over a short distance. These systems are quite common in the cement and fertilizer

plants where the material in powdered form is moved to the storage silos using the pneumatic

flow. The air at pressure of 7 kg per em" is normally used for transporting the material, which car-

ries the powder in the direction of the flow. In modern food grain warehouses the food grains in

bulk quantity are stored in the silos. The pneumatic tube systems are used for storage and retrieval

of the material. In some cases the vacuum pumps are also used for material retrieval. These sys-

tems ensure faster material movement with reliability. For bulk transfer of powered material these

systems are cost effective and reliable.

Semiautomatic System

In semiautomatic system all mechanized handling equipments may be used but the specific

handling requirement for a particular warehouse operation may be performed automatically.

The automation is done in parts, that is the individual equipment may be fully automatic with

computerized system, but the other equipments in the warehouse are mechanized with manual

operation. Hence the semiautomatic warehouse is a mixture of mechanized and automatic handling equipment.

The following are the various types of automated equipments in semiautomatic

warehouse system.

Sorting Device.- Sorting devices are normally used along with powered conveyors. The sorting

device sorts materials based on the sorting code. The optical sensing reads the bar code on the

items, which can be diverted to packing section for unitization of load, or the boxes may be sorted

out on regional basis guided to specific shipment dock for transportation through assigned vehicle. The

automatic sorting device increases the system productivity through speed, accuracy and

elimination of manual labour.

Robotics.

Robots are human-like machines with microprocessor used for performing the programmed activity or series

of activities. A wide scale usage of robotics is in manufacturing units

where repetitive activities are performed continuously or activities are performed in hazardous

working conditions, which could be harmful for human life. In warehouses, robotics can be used for

break bulk or consolidation operation. Robotics can also be used in extreme temperature environment such as

cold storage or deep freezer. The capability of robotics to perform activities without

fatigue and with accuracy makes a suitable alternative to manual methods.

Automatic Guided Vehicle System.

Automatic guided vehicle system (AGVS) is a mechanized

material handling equipment without an operator. The system consists of four components, e.g.

vehicle for movement, pickup and drop off locations, guidance system and a computer-controlled

system. The vehicle moves on a fixed magnetic or optical path. The vehicle reaches to the destination tracing

the assigned path covering the pickup and drop stations without the help of an

operator. These systems operate at the speed of 150-250 feet per minute, which is slower than the

typical forklift truck that operates at 300-500 feet per minute. In the case of a magnetic system,

the path is an energized magnetic wire installed on warehouse floor and for optical system a light

beam guides the vehicle.

AGVS are used in warehouses for material movement through a fixed assigned path during

pickup and drop operations. The advanced AGVS used in developed countries are based on the

latest IT and video technology, where the fixed path movement of the vehicle can be eliminat ed.

The economic justification of the system is a trade-off between the lower operating cost and higher

investment.

5.0 SUPPORTS OF ICT PROVIDE TO LOGISTICS

ICT in warehouse provide the following supports to logistic operations

Real-Time access to data for customers Supports selective data sharing with specified trading partners Facilitates smoother internal operations and supply-chain management Expanded service coverage (longer hours, access) Flexible communications Expanded customer base -access to new markets Enhanced company image and brand Automated operations – e.g. shipment tracking Automated transactions – e.g. order processing Increased overall transactional and operational efficiency Reduced transaction and customer service costs

Improvements recorded with the deployment of ICT are as follows.

Stock re-ordering against pre-set levels and quantities Proposed changes to operations and networks can be modelled and assessed Automatic tracking control of equipment, products and assets – constant visibility

Performance monitors and controls generated automatically Immediate access to information Cost savings Competitive advantage Accuracy & improved control Integration and coordination Lead-Time reductions Better service

From every logical perspective, ICT will remain a tool for integrating and coordinating logistics, supply-

chains and all relevant parties, and increasingly flexible warehouses involving complex sorting operations

and improved communications systems.

Decision-making and ICT

Supply-chain management relies heavily on the electronic gathering and manipulation of data.

Electronic communications enable:

Automatic decision-making Modelling of proposed changes Automatic tracking control Automatic monitoring of activities

Inventory Management Systems (IMS)

Manage the information flow of stock Analysis of demand patterns Determine the methods of replenishment Monitoring the use of resources Supplier information and Lead-Times

Warehouse Management Systems (WMS)

Assistance in receiving, storage, picking and despatch operations Inventory accuracy and error reduction Productivity and resource management Improved customer service and paperwork reduction Information management and control

6.0 OBJECTIVES AND BEST PRACTICES OF WAREHOUSING IN THE SUPPLY CHAIN

a) The warehouse is a special point in the supply chain where a company store raw materials, semi-finished

goods, finished goods to meet its own needs and that of the customers. In logistics operation, warehouse

has taken on a strategic role of attaining the goals of shorter cycle times, lower inventories, lower costs and

better customer service.

Some of the objectives of the warehouse in the supply chain are as follows.

i. Storage of inventories

ii. Operational planning

iii. Customer service and awareness

iv. Integration of activities

v. Time utility for raw materials, industrial and finished goods

vi. Housekeeping standards

vii. To offer a Professional service

viii. Catering for Uncertainty

(The student is required to briefly discuss five out of the eight listed points)

6.1 BEST PRACTICES IN WAREHOUSING

Practices as just-in-time (JIT), quick response, efficient consumer response, direct-store delivery and

continuous flow distribution will reduce the dependence on warehouse in distribution. But in the real

world, warehousing will still link suppliers with consumers. The following are some warehouse trends for

best practices in warehousing.

i. Focusing on the customer: Retailers for holding the customer through service differentiations need to

create efficient and responsive warehouses.

ii. Compression of operations and time: For bigger Distribution Centre (DC) with more orders to process

daily, i.e. frequent shipments of smaller sizes resulting in more activity in receiving, putting away, picking

and shipping will place greater demands on material-handling systems.

iii. Continuous flow: The focus will be on pulling a product through a logistics system to avoid huge

inventories resulting in daily order processing. With an accelerated information flow, material flow is

enhanced to meet on-line or real-time information systems to replace batch systems.

iv. Cross-docking: Fewer warehouses handling more orders will transform most warehouse operations to

predominantly cross-docking practices. Collaboration and the ability to exchange information on real-time

basis will facilitate handling more efficiently.

v. Electronic transactions: Warehouse professionals consider tracking goods the most critical function in

their operations. Using electronic tracking systems for all product movement will eliminate traditional

errors associated with product recognition, confirmation of locations, data entry and picking accuracy. This

paperless warehouse will simplify and streamline transactions, while reducing overall labour requirements

and training.

vi. Customized warehousing: Companies failing to prepare their warehouses for customized packaging

requests stand to lose millions of Naira. Customized services include generic products in the warehouse

(on-demand packaging), compliance labelling, ticketing and bagging, damage and palletization. Floor-

ready merchandise will allow retailers to implement rapid stock-replenishments strategies that reduce

inventory while increasing stock turns.

vii. Third-party warehousing: Companies returning to their core competencies or refusing to build more

space to store peak inventory have driven the rise of third-party warehousing to leverage capital and

increase service levels. Despite the advantages of third-party warehousing, however, some products and

organizations simply will not be compatible with this practice.

viii. The incredible shrinking order: Many factors are shrinking order sizes and accelerating order

frequency: better information availability improved technology, vendor managed inventory programs and

the elimination of on-site retail warehouses. The days of mixed pallet shipments will soon seem like utopia.

These changes are only the first step in the information explosion coming in the next century. The ability to

ship orders of any size is more than a problem – it is the future.

ix. Automation: Warehouses will need to increase automation, not add labour, to handle burgeoning work

volumes. More conveyors, for example, will be needed to move small totes and cases across long distances

and sort to the appropriate re-packaging station or loading dock. More automated picking equipment,

such as A-frames and dispensers, will improve throughout capacity without building additional space.

Automation will also continue to replace human beings in heavy lifting, but a human workforce must still

complement automation.

x. The human factor: The rising prominence of automation means that workers must continue to enhance

their technical skills, especially computer skills. To improve the quality and education of the workforce,

companies must retain the best workers, train them in new technologies and cross-train them in all

warehouse job functions. Those unwilling to learn probably are not worth retaining.

7.0 Warehouse Analysis

Below are some factors to be considered when establishing and operating a warehouse.

The need each warehouse Stocks and item be packed Products to be kept Regularity of handling and products to be handled Products storage in relation to the flow / rate of movement Exact places where each product would be located Optimal layout of the warehouse Planned operational standards Manage warehouses yourself or Outsource Multi-skilled workforce required

If the above question are solved and answered correctly, a warehouse can function optimally and

efficiently.

7.1 TYPES OF WAREHOUSES

The need for warehouses differ because of product characteristics, demand fluctuations, investments, cost

of operation, degree of control, economics of scale, etc. The common types in use are as follows.

a. Private warehouse

b. Public warehouse

c. Contract warehouse.

Private Warehouse

Private ownership of a storage facility refers to the entire facility under financial and administrative control

of the firm. The firm owning the product operates these warehouses. The facilities may either be owned by

the firm or taken on lease for a period of three or five years. These facilities may include a production

oriented captive warehouse or a distribution warehouse located in the field for customer service. Private

warehouses are attractive propositions under certain circumstances such as Product specific material

handling and storing facilities are required which are not available with other options.

The advantages of private warehouses are full capacity utilization and economy of scale, flexibility, full

management control and lower operating cost, material handling and the storage facility can be changed as

per the product mix, which is not possible in the case of public or contract facilities.

The benefits of a private warehouse is that the operating cost of a private warehouse is less as private

warehouses do not have a profit mark up, hence they have complete flexibility. A private warehouse

facility can be planned close to the markets to provide efficient and effective service to the customer. This

enhances the confidence of customer in the supplier.

Public Warehouse

a) A public warehouse is similar to a private carrier in transportation service. The firms having

warehousing space, storage facility and material handling equipment, for the most general usage,

provide these services. These types of warehouses are extensively used in logistical systems. Public

warehouses are designed for handling the most general packaged products or commodities, which do not

require specialized storage or handling arrangement. The products normally stored are food grains, paper

rolls, bulk material (cements, fertilizers), furniture, chemicals etc.

b) Bonded warehouses under the customs control are mostly public warehouses licensed to store goods,

meant for exports or imports, till the time they are cleared by the customs authority for further movement.

c) A public warehouse provides financial flexibility. A newly established firm desirous of expanding its

distribution network need not invest in developing a private warehouse. The option is to hire some space

in a public warehouse and use the money for other productive activities. This will substantially increase the

performance related to return on investment of the depositor firm. A public warehouse allows flexibility

of location. Due to geographical changes in consumption centres, a firm can close a facility in one market

and open at other place without any financial losses.

The greatest disadvantage of a public warehouse is the absence of control on operations. As a product

specific facility is not available, product damages during storage and handling may be on a higher side. The

speed of order fulfilment is slow resulting in a lower level of customer service.

d) The economies of scales can be achieved with a public warehouse because of volumes generated

through a large number of facility users. The transportation cost can be considerably brought down

leveraging the volume shipments of assorted products from various depositors.

Contract Warehouse

These are the product specific warehouse facilities acquired for use for a specific period against fixed

charges. A contract warehouse can provide the benefits of both private and public warehouses. This

facility provides the economies of scales, flexibility and customizes a facility. The resources such as labour,

material handling equipment, storage arrangement, communication equipment, can be used on sharing

basis with depositors from the same industry to economize on operating cost. As the facilities are product

specific product damages are less. The large volume will apportion the fixed costs with the co-users.

Obviously, the choice between the above options depends on the demand pattern of the product, volumes

handled, geographical location, seasonality of the product and standardization of product packaging,

financial strength of the firm, service level expectations of the customer, competition, etc.

7.2 FUNCTIONS WAREHOUSES

Warehousing has three basic functions: movement, storage, and information transfer. The movement

function has been receiving the most attention in recent times, as organizations focus on improving

inventory turns and speeding orders from manufacturing to final delivery.

a. MOVEMENT FUNCTION OF WAREHOUSING

We can further divide the movement function into several activities including:

i. Receiving

ii. Transfer or put-away

iii. Customer order picking/selection

iv. Cross-docking

v. Shipping

b. STORAGE FUNCTION OF WAREHOUSING

The second function of warehousing – storage – can be performed on a temporary or a semi permanent

basis.

Temporary storage emphasizes the movement function of the warehouse and includes only the storage of

product necessary for basic inventory replenishment. The extent of temporary inventory storage depends

on the design of the logistics system and the variability experienced in lead time and demand. A goal of

cross-docking is to use the temporary storage function of the warehouse.

Semi permanent storage is the storage of inventory in excess of that required for normal replenishment. It

can also be referred to as buffer or safety stock. The most common conditions leading to semi permanent

storage are:

i. Seasonal demand

ii. Erratic demand

iii. Conditioning of products such as fruits and meats

iv. Speculation or forward buying

v. Special deals, such as quantity discounts.

c. INFORMATION TRANSFER FUNCTION OF WAREHOUSING

We are now on the third function of warehousing which is information transfer.

This function unlike the other two occurs simultaneously with the movement and storage functions.

Managers will always need timely and accurate information as they attempt to administer the warehousing

activity. Information on every aspect of the warehouse like inventory levels, inbound and outbound

shipments, customer data, among others, is vital to the successful operation of a warehouse.

Organizations are relying increasingly on the computerized information transfer using electronic data

interchange, EDI, the internet, and bar coding to improve both the speed and accuracy of information

transfer.

Take Note

Within the warehouse it is important to eliminate all

inefficiencies in movement, storage, and information

transfer. These can occur in a variety of forms, such as:

i. Redundant or excessive handling

ii. Poor utilization of space and cube

iii. Excessive maintenance costs and downtime due to

obsolete equipment.

iv. Dated receiving – and shipping-dock conditions

v. Obsolete computerized information handling of

routine transactions.